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2021 | March Risk Odometer

FCWS View March 2021 | Outlook: Cautiously Positive

2021 |  March Risk Odometer

 

Our Risk Odometer and Outlook remain unchanged in March at +1 and Cautiously Positive, one level below our most positive level. 

Technical signals continue to remain strongly positive, but neutral or negative fundamental indicators continue to keep our overall reading tame.  If the economy continues to improve, which we expect it will, our fundamental indicators should turn positive in the second quarter and give us a clearer and more positive outlook.  In the meantime, a lot can happen, and we will keep a cautious tone to our optimism until the data confirms.

The winter economic slowdown looks to be fading and optimism around an economic reopening are gaining momentum, thus increasing our optimism regarding the stock market.  Pfizer and Moderna are increasing production of their vaccines and the number of people being vaccinated is outpacing previous expectations.  Johnson and Johnson’s recent vaccine approval will put a third vaccine in distribution, which will further the pace of vaccines being distributed.  It will not be long before we are discussing oversupply in vaccines and what to do with them!  This should continue to bode well for the markets.

Our chief concern at this point remains stock market valuations.  We believe if the Federal Reserve continues to maintain their very accommodative stance it will trump valuation concerns and the market will march higher.  Lofty valuations can lead to future market volatility, but we would view this as opportunistic if the Federal Reserve maintains their current policy. 

The Federal Reserve continues to stress they are no where close to removing accommodation.  They are also encouraging the Federal Government to increase their efforts via larger stimulus measures.  With Democrats controlling both the House and Senate, it looks like the $1.9 trillion package may pass in its current format rather than negotiated lower through bipartisan efforts.  These efforts by the Federal Reserve and the Federal Government are creating optimism in the markets.

As always, we continue to believe our Risk Odometer provides guidance in making better investment decisions because it keeps us objective and disciplined.  We use this methodology and advise our clients to do the same.  Emotions are our enemies in investing. 


It is important to understand that our Risk Odometer is not designed to anticipate small to medium corrections, typically those in the 5-15% range.  Instead, it monitors for conditions which have typically preceded larger corrections.  We believe trying to anticipate small to medium corrections sounds attractive but more often results in lost opportunity than savings.


The Equity Market Risk Odometer is our guide for judging risk in the equity market.  It is used as a guide for investment decisions in The Core Equity Strategy.  It is composed of various indicators based on leading economic indicators, earnings, technical price action, breadth, volatility, sentiment, and reportable positions from the Commodities Futures Trading Commission.  Its score can range from +7 to -7.  Readings greater than 1 are positive and readings less than or equal to zero are negative. 


 

Disclosures

This information does not have regard to the specific investment objectives, financial situation and the needs of any specific person who may view this information. Statements, opinions and forecasts made represent a particular observation and assessment of the market environment at a specific point in time and are not intended to be a forecast of future events or a guarantee of future results. Statements regarding future prospects may not be realized and may differ materially from actual events or results. Past performance is not indicative of future performance.

Each investment type has different investment risk characteristics. Risk is the variability of investment returns.

An investment in a money market fund is not insured or guaranteed and seeks to preserve the value of your investment at $1.00 per share. It is possible to lose money by investing in a money market fund.

U.S. Treasury bonds are guaranteed as to the timely payment of principal and interest.

TIPS offer a lower current return to compensate for the inflation protection. TIPS are tax inefficient and should belong in tax-deferred accounts.

Tax-exempt municipal bonds offer the opportunity to maximize your after-tax return consistent with the amount of risk you're willing to accept. Municipal bonds offer a higher net yield to investors in higher tax brackets. Municipal bonds may be subject to AMT.

Corporate bonds are considered higher risk than government bonds. Corporate bonds have higher interest rates than government bonds. The higher a company's perceived credit quality, the easier it becomes to issue debt. High yield bonds experience higher volatility and increased credit risk when compared to other fixed income investments.

Bonds have fixed principal value and yield if held to maturity. Prices of fixed-income securities may fluctuate due to interest rate changes. Investors may lose money if bonds are sold before maturity.

REITs do not necessarily increase and decrease in value along with the broader market. However, they pay yields in the form of dividends no matter how the shares perform based on different criteria than stocks.

Stocks can have fluctuating principal and returns based on changing market conditions. The prices of small company stocks generally are more volatile than those of large company stocks. Growth stocks are more volatile than value stocks.

International investing involves special risks not found in domestic investing, including increased political, social and economic instability. Investing in emerging markets can be riskier than investing in well-established foreign markets.

The price of physical materials is subject to supply and demand.

It is not possible to invest directly in any index. The performance of an unmanaged index is not indicative of the performance of any particular investment. The performance of an index assumes no transaction costs, taxes, management fees or other expenses. Past performance does not guarantee future results.

Sector investing that concentrate its investments in one region or industry may carry greater risk than more broadly diversified investments.

There is no assurance that by assuming more risk, you are guaranteed to achieve better results.

Historical performance relative to risk and return points to, but does not guarantee, the same relationship for future performance.

Diversification through an asset allocation plan is a useful technique that can reduce overall portfolio risk and volatility. Diversification neither ensures against a profit nor protects against a loss. Diversification offers returns which are not directly related over time and is intended for the structure of a whole portfolio to reduce the risk inherent in a particular security.

Data Source: YCharts

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Michael Fickell is an investment advisor representative of FC Wealth Solutions

Securities and investment advisory services offered through FC Wealth Solutions, a registered investment advisor.

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